Do I pay tax on my Airbnb income? 

The rise in tourism in our area in recent years means that many people now have income through renting out property to holiday makers, through the likes of Airbnb (other platforms are available).  

Is this income taxable?  The basic answer is technically, yes.  However, as with all things tax, there are lots of rules around this, depending on your individual circumstances.  I will cover most of the scenarios I see with our property clients in this blog.  

I rent out a room in my own home

If you rent out a room in your own home, there is a thing called the Rent a Room Scheme which might be available to you.  

This means that you can earn up to £7,500 (the allowance at the time of writing) in a year tax free.  In fact, if your income is under £7,500 in the tax year then you don’t even need to declare it to HMRC!

As usual, there are some criteria you need to meet:-

• The accommodation you are renting needs to be furnished accommodation in your main residence (i.e. do you share a front door with the people staying?).
• The allowance is per property. So, if you own the property with someone else, the allowance is split 50/50 (£3,750 at the time of writing).
• The Rent a Room relief is an allowance on ‘gross’ rents (the money you get in), rather than profits (which is your income less expenses).. This means that if your rental income is more than £7,500 before costs, you have some further calculations to do.

 If your rental income is more than £7,500 you have 2 options:-

1. Take your income and deduct a flat £7,500 (or £3,750 if joint property) from that to arrive at your taxable profit.  The £7,500 is an allowance from HMRC so if you haven’t kept a track of your expenses (I see you!) then you could simply just use the allowance instead. 
2. Deduct your actual expenses and be taxed on that profit. 

Helpful tip – if your actual expenses are less than £7,500 then it makes sense to use the allowance instead as you will get more tax relief!  On the flip side, if your actual expenses are more than £7,500 then you are better off using your actual expenses.  

You can find more information on the Rent a Room Scheme on the HMRC link here.  It’s always worth checking what the allowance is in case it ever changes.  

I have property income from a property which isn’t my own home

If you are renting out a separate flat/house then the Rent a Room allowance will not apply.  In that case, you calculate your profits like any other landlord, deducting your expenses from your income, and reporting this on a tax return.  See the section below on what ‘profits’ are, and how they are calculated.  

Your let may be classed as a ‘furnished holiday let’, which have some different tax rules surrounding them to a traditional long-term rental property. You will still pay tax on the profits, but when it comes to things like tax relief on buying things like furniture at the start of the let, on interest deductions, or selling the property, the rules are much more favourable than normal residential buy to let situations.  

For holiday lets, there are conditions around how many days the property is let out and available. For example, the property needs to be:

• Available to let for at least 210 days in a 12-month period

and

• Actually let for at least 105 days.

The Property Allowance

If your property income is very small and it is outwith the Rent a Room Scheme, there is a £1,000 Property Allowance available.  This means you can earn up to £1,000 tax free from rental income without declaring it.  If you earn more than £1,000 you can use the allowance in place of deducting your actual expenses. In this case, you take off a flat £1000 of your rental income to arrive at your profit.

 Wait – what are profits?  

Profit is what’s left over once you take your income and deduct your expenses.  But note these are not just any and every expense you like – it’s tax deductible expenses only – sorry!.  

What on earth are tax deductible expenses?  These are expenses which you have incurred solely for the purpose of running the property business.  The rules around these are complex, and it’s always worth checking the rules with an expert but here is a list of the most common expenses we see with our property clients:-

• Insurance
• Heating 
• Repairs and maintenance
• Furniture, crockery, linen etc
• Cleaning 
• Welcome packs for guests
• Mileage costs for business trips
• Short term let licence costs

For example, if you had £10,000 in, and paid £4,000 out in gas/electric, repairs etc, you’d pay tax on the £6,000 profit.

How much tax will I pay on my Airbnb income?  

The million dollar question and you guessed it – it depends. 

It depends on your other earnings. Are you employed as well?  Do you have another self employed business?  A lot of accidental landlords often have other income.

When you do your tax return, your total income for the year is what you are taxed on. This can be a combination of things like employed income, self employed profit, the property profit, dividends etc.  You then deduct any tax you have already paid (for example through PAYE if you are an employee) and you pay any shortfall to HMRC.  

If you do have other income and have earnt over the personal tax free allowance of £12,570 (current allowance) already then you will pay tax on every pound of profit you make from the property income.  So it’s really important you save for the tax as you go! 

Based on the tax year 23/24, if your total combined income for the year once you add everything together is around £43,000 or less then you will pay tax on the property profit at 21%.  If it’s more than that then you could end up paying tax on the profits of the Airbnb income at 42%…so definitely get into the habit of putting an amount away each month for tax.  

You may also have payments on account to deal with…more info on those in my blog here.  

If you have only ever been employed and suddenly find yourself with property income to declare, it can be daunting having to register with HMRC and submit a tax return for the first time.  You may have questions like:-

• How do I register with HMRC?
• How do I keep proper records? 
• What is the tax year?  Is it a calendar year? 

If this is you and you need help with this, or have any questions on this blog, please get in touch here.  And don’t leave it too late; deal with it before it becomes an urgent issue!